Global energy intensity convergence using a spatial panel growth model

Abstract

ABSTRACT In this paper, we empirically test the convergence of income and energy intensity for 61 countries using an augmented spatial growth model that includes energy and urbanization variables. We test an income convergence model to understand how energy use affects economic growth, and reveal that developing countries have energy constraints on their economic development. We show that energy is an essential component of economic growth in the early stages of development and that energy intensity converges between countries. It is consistent with the OLS estimation results that the convergence rate of energy intensity in developing countries of the spatial panel data model is still higher than in developed countries. However, the spatial panel data model shows that the gap between the two convergence rates is narrowed when spatial dependence is included. This implies that a country’s steady state is influenced by the neighbouring countries and emphasizes the importance of international cooperation policies for reducing energy intensity. Since the effects of economic variables on the reduction of energy intensity are different in developed and developing countries, a country-specific energy policy rather than an internationally uniform policy is required.